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Pay transparency laws require employers to disclose certain information about employee compensation, including salary ranges and benefits packages, in job postings for open positions, during promotions and transfers, and upon request from existing staff. The United States has seen a rapid expansion of these laws over the past few years, with an increasing number of jurisdictions implementing them.
While pay transparency laws can certainly help promote pay equity and reduce potential gender- and race-related wage disparities, they also pose additional employment practices liability (EPL) exposures. These laws aren’t solely an HR matter, but rather a corporate governance issue that can leave noncompliant businesses and their leadership teams with costly litigation and insurance challenges.
The Consequences of Pay Transparency Litigation
Employers must comply with pay transparency laws in any jurisdiction where their employees work. This means that employers operating in multiple states or with remote employees stationed across the country may face a patchwork of regulatory requirements, creating an increasingly complex compliance landscape.
In addition to increasing compliance demands, expanding pay transparency laws have provided greater visibility into employers’ pay practices, exposing previously concealed compensation data. This has helped shed light on prolonged pay disparities, inconsistent compensation structures, and patterns of employment discrimination among businesses and their leadership teams, increasing the likelihood of costly litigation. Common forms of pay transparency litigation include discrimination and retaliation charges, class-action lawsuits, and third-party allegations.
When businesses and their leadership teams encounter pay transparency litigation, this may trigger associated EPL claims. Depending on the nature of these claims and the specific policy limits and exclusions, businesses may receive only partial coverage for any legal defense costs, settlements, and judgments arising from this litigation. Even if businesses have ample coverage for these losses, repeated EPL claims, especially those involving costly payouts, may result in heightened premiums, restricted capacity and greater underwriting scrutiny going forward.
Mitigation Strategies
The following are actionable ways businesses can avoid pay transparency litigation and related EPL claims:
Strengthen compensation governance
Businesses should consult legal counsel to ensure compliance with applicable pay transparency laws in their jurisdictions, including those where they recruit and employ remote workers. Corporate leaders should also be well-versed in these laws and actively participate in developing a structured framework of standards and processes to determine fair employee compensation.
Enhance pay transparency controls
Businesses should also train management on pay transparency laws and their related responsibilities. In particular, managers should be educated on leading pay-related discussions, conducting appropriate hiring practices, and maintaining consistent compensation documentation.
Ensure proper coverage
Businesses should work with trusted insurance professionals to closely review their EPL policy scope and exclusions, adjust coverage limits, and secure specialized solutions as needed to reflect the latest employment litigation trends.
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Protection from EPL Exposure
With employment lawsuits becoming more prevalent, small and new businesses can be especially vulnerable to employment claims, as they may lack the legal resources of a large corporation.
An EPLI policy will reimburse a business for the costs of defending a lawsuit and for judgments and settlements. While EPLI covers legal costs, whether a business wins or loses the lawsuit, it doesn’t pay for punitive damages or civil or criminal fines.
Contact the GTM Insurance Agency today for more information about obtaining an EPLI policy, or get a complimentary quote.
